Earned Value Management: An overview

Submitted by Mario Vanhoucke on Mon, 12/12/2011 - 16:33

Controlling a project is key to the success or failure of the project. Measuring the project performance along the life of the project is a way to provide early warning signals that can be used as triggers for corrective actions in case the project is in danger. Earned Value Management (EVM) is a well-known technique to control the time and cost performance of a project. It is a methodology used since the 1960s, when the American Department of Defense proposed a standard method to measure a project's performance. The system relies on a set of often straightforward metrics to measure and evaluate the general health of a project. These metrics serve as early warning signals to timely detect problems or to exploit project opportunities. This article gives a brief overview of the main parameters and indicators used in an EVM approach, in order to give answers to the following questions, as summarized along the following lines:

Key parameters: what is the difference between plan, cost and progress?
Performance measures: what is the current project performance (time and cost)?
Forecasting: what is the expected project duration and total cost (given current performance)?

Figure 1 shows the main components of an EVM analysis, divided in three different layers. For an overview of the EVM formulas, see “Earned Value Management: The EVM formulary”.

Figure 1: The three important components of Earned Value Management

Key parameters

The three key parameters of EVM are given along the following lines:

Planned Value (PV): Time-phased budget baseline as an immediate result of the baseline schedule, often called the Budgeted Cost of Work Scheduled (BCWS).
Actual Cost (AC): The cumulative actual cost spent at a given status date, often referred to as the Actual Cost of Work Performed (ACWP).
Earned Value (EV): Represents the amount budgeted for performing the work that was accomplished by a given status date, often called the Budgeted Cost of Work Performed (BCWP) and equals the total activity (or project) budget at completion multiplied by the percentage activity (or project) completion (PC) at this particular point in time (= PC * BAC).

More information on the three key metrics of EVM can be found in “Earned Value Management: The three key metrics”. Based on the Planned Value and Earned Value, a fourth key parameter can be automatically calculated as follows:

Earned Schedule (ES): Translation of the EV of a given status date into time units by determining when this EV should have been earned in the baseline schedule.

The Earned Schedule metric measures your project progress in a time dimension and varies between 0 time units (at the start of the project) and the baseline Planned Duration (PD) at the end of the project. Hence, at the end of the project, EV = PV and ES = PD. More information can be found in “Measuring Time: Earned value or earned schedule?”.

Performance measures

Project performance, both in terms of time and costs, is determined by comparing the key parameters PV, AC, EV and ES, which results in the following performance measures.

Time performance: The Schedule Performance Index (abbreviated as SPI or SPI(t) depending on whether EV or ES is used) is a measure to express the current time performance of the project, showing whether the project is ahead of schedule (>100%), on time (=100%) or late (<100%).
Cost performance: The Cost Performance Index (abbreviated as CPI) is a measure to express the current time performance of the project, showing whether the project cost is below budget (>100%), on budget (=100%) or above budget (<100%).

Information on the calculation and interpretation of the performance measures is given in “Earned Value Management: Measuring a project’s performance”. A discussion on the two variants of the time performance measures is given in “Earned Value Management: Reliable time performance measurement”.

Forecasting measures

The project time and cost performance measures are assumed to be a representative indication for future project performance, and can therefore be used to forecast the final project duration and cost.

Time forecasting: The Expected At Completion - Time (abbreviated as EAC(t)) is a forecast of the final project duration at the current status date, given the current project performance. Obviously, this forecast might differ from the baseline Planned Duration (PD).
Cost forecasting: The Expected At Completion - Cost (abbreviated as EAC) is a forecast of the total project cost at the current status date, given the current project performance. Obviously, this forecast might be different from the original budget or Budget At Completion (BAC).

Information on project forecasting can be found in “Earned Value Management: Forecasting time” and “Earned Value Management: Forecasting cost”.

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Earned Value Management: An overview